As we raise the next generation who will one day enter the workforce and pursue their ambitions, it’s wise to consider how we can help our young people develop financial literacy. While learning to count and to read are critical skills for success, so is understanding personal finance.

Personal finance is taught in some classrooms, but it’s still an overlooked topic in many curriculums. Furthermore, what our young ones are taught may not include all the tools they need to help them reach their goals.

As mentioned in my previous newsletter, “Planning for Your Young Ones’ Future”, my husband and I have opened a joint investment account, and a 529 college savings account for our daughter, Amelia, to save for her future. We also plan to open a Custodial Roth IRA for her when she starts earning her own money.

In our growing family, we want to teach our children about personal finance and part of that is helping them understand the significance of money. To instill certain values related to money and establish healthy routines. Therefore, when she begins to earn money, she will take:

• 10% of her earnings and donate it to a local charity of her choosing.
• 30% will go towards her savings. She will choose whether to put it into her Roth IRA, college 529 account, or bank savings.
• The other 60% of her allowance will be for her to spend how she sees fit and learn from real life experiences.

Once she has had some experience splitting her hard-earned money amongst these three pots, we’ll take a step back from the structured approach and instead let her decide how much to put in savings, to donate, and to spend. The hope is she will have learned the benefits and importance of each and be able to make wise decisions with her money. The decision-making part of the process is important – we can instill knowledge and influence our young people to make the “right” choices, but it takes real-life experience for these lessons to be solidified.

In addition, through the Roth IRA, we will help her learn the basics of investing and how to pick investments. A common starting point for young kids is helping them pick three items they use daily, then figuring out which company manufactures the items of their choosing. Usually, the company is a public company or a subsidiary of one, and the child can purchase a share in the company. For example, let’s say a child chooses: 1) their toothbrush, 2) their favorite Disney toy, 3) bananas from the grocery store. Bananas are Amelia’s favorite fruit right now.

You could connect the toothbrush to Colgate Palmolive Company (ticker: CL), the Disney toy to Disney Company (ticker: DIS), and the bananas to Kroger Co. (ticker: KR). If the child buys a share of each using the savings in their Roth IRA, this gives them small ownership in items they use every day.

Furthermore, it’s important to review how the stock is performing with the child and talk about what that means to them. For example, if the value of their “banana” stock increases 5%, that means they could cash out that particular investment and would have 5% more money than what they invested in the first place. Ultimately: they can buy more bananas because they invested their money. Simple conversations lay the groundwork for financial literacy in their later years.

When it comes to spending their funds, there are many lessons we can teach through daily life. When you’re at the store or making other purchasing decisions, talk to them about it. For example, my family likes the Tillamook cheese which is usually pricier than other brands. It will go on sale periodically; so, we usually wait until then to stock up to save some extra money. Or even though Honeycrisp apples are more expensive, we know we’ll enjoy them and they won’t go to waste, so we’re comfortable paying the higher price. Although Amelia is only 10 months old, I try to talk with her about my decisions while we’re in the grocery store together. She may not understand the significance of what I’m saying, but I’m establishing the routine for myself now. I may look a little funny talking to a baby in the store, but that’s okay with me!

It’s also important to let kids learn from their decisions. For example, let’s say they choose to spend all their allowance on the day they receive it and don’t have any more money for the rest of the week. Let them sit with that discomfort and learn from it. When they’re out with their friends and want to get an ice cream, but they spent all their allowance already, it’s an opportunity to learn from the experience and will help them manage their funds more wisely in the future. Perhaps you can even sit down with them and help them budget their funds for the week, which would instill another critical personal finance skill.

There are tons of other tools you can use to help your young person learn about personal finance. Such as:

• matching their contributions into savings like with a 401(k)-matching program
• certain household chores be paid as “overtime”
• helping them set savings goals towards a big-ticket item
• let them take a small loan from you and pay you back with interest
• there are also many kid-friendly apps to help them manage their allowance and educate them about financial concepts

I plan to use many of these ideas as Amelia grows and can understand them better. We’ve all got to learn it somehow.

Once your young person is in high school or college, you could also consider signing them up for our summer internships. Each summer we offer one week internship opportunities for young adults aged 15 – 22. We help them craft their short and long-term goals and set a budget for each of those goals. They work directly with our team to craft a financial plan using our financial planning software. At the end of the week, the interns present their financial plan to their parents and/or guardians. We have had dozens of kids go through this program over the years, and it is always a powerful first step toward finding clarity and confidence in their own unique story.

No matter what tools you choose to use with your young ones, it will help them become more financially healthy adults. Let us know how we can be of service.

About TenBridge Partners

TenBridge Partners is an independent financial planning and investment management firm based in Portland, Oregon with a simple focus of honoring the fiduciary responsibility of putting clients first. Guiding with curiosity and trusted expertise, we empower people to live their unique story with financial clarity and confidence.

Planning is central to everything we do. Our focus is on a complete understanding of your needs through the financial planning process, putting your success at the heart of our work.

We strive to create a community where financial planning feels fun, dynamic, and human.

Sirra Anderson Crum CFP®
Financial Planner

The information contained in this correspondence is intended for general educational purposes only and as a means for facilitating a conversation.  Please consider our door always open to discuss your particular situation and how this information might benefit you and fit your specific needs.